Welcome to the American States Water Company Conference Call discussing the company's First Quarter 2020 Results. The call is being recorded. If you would like to listen to a replay of this call, it will begin this afternoon at 5 p. M. Eastern Time and run through Tuesday, May 12, 2020, on the company's website, www.aswater dotcom.
The slides that the company will be referring to are also available on the website. This call will be limited to an hour. Presenting today from American States Water Company is Bob Sprowls, President and Chief Executive Officer and Eva Tang, Senior Vice President of Finance and Chief Financial Officer. As a reminder, certain matters discussed during this conference call may be forward looking statements intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995. Please review a description of the company's risks and uncertainty in our most recent Form 10 ks and Form 10 Q on file in the Securities and Exchange Commission.
In addition, this conference call will include a discussion of certain measures that are not prepared in accordance with Generally Accepted Accounting Principles or GAAP in the United States and constitute non GAAP financial measures under SEC rules. These non GAAP financial measures are derived from consolidated financial information that are not presented in our financial statements that are prepared in accordance with GAAP. For more details, please refer to the press release. At this time, I will turn the call over to Bob Sprowls, President and Chief Executive Officer of American States Water Company.
Thank you, Kate. Welcome everyone and thank you for joining us today. I'll begin with an update on our COVID-nineteen response, then discuss some highlights for the quarter. Eva will review some financial details and then I'll wrap it up with some updates on regulatory filings, American States Utility Services or ASUS and dividends, and then we'll take your questions. As the United States has responded to the COVID-nineteen pandemic and despite shelter in place requirements, customers of Golden State Water and ASUS continue to receive the same high quality uninterrupted water, electric and wastewater services.
The health and safety of our customers and employees is as ever our first priority during this unprecedented time, and we have taken the necessary steps to protect both. In terms of the effects on our business, like many utilities, we are making special accommodations for our customers in this uncertain time, including suspending service disconnections for non payment through April 2021 and waiving fees and deposit requirements for affected customers. Through our emergency response planning, we were well prepared to enable many of our employees to work remotely and have made other adjustments as needed until restrictions begin to ease. In terms of the financial impact of COVID-nineteen on the company, the California Public Utilities Commission or CPUC has authorized Golden State Water Company to activate a catastrophic event memorandum account to track incremental costs incurred as a result of our COVID-nineteen response for future recovery. So at this point, we don't expect a significant earnings impact on Golden State Water.
Eva will discuss the company's liquidity later in the call. Similar to our regulated businesses, our water and wastewater services performed on military bases by ASUS are deemed essential services and as such ASUS has not experienced any significant disruptions to operations. As a result, we do not expect there to be a meaningful impact to its earnings either. Regarding our Q1 results, I'm pleased to report that the company had another solid quarter of earnings. Consolidated earnings were $0.38 per share, a $0.03 per share increase over last year or 8.6 percent, despite an $0.08 per share reduction in earnings from the company's investments held to fund a retirement plan due to the volatility in the financial markets during this pandemic time.
For our utility subsidiary Golden State Water Company, both the water and electric segments earnings increased $0.03 per share. 1 of the many effects of the COVID-nineteen pandemic has been increased volatility in the financial markets, which for the company resulted in a $2,400,000 pre tax loss incurred during the Q1 of 2020 on investments held to fund 1 of the company's retirement benefit plans, compared to a pre tax gain of $1,500,000 during the Q1 of 2019, decreasing earnings by $0.08 per share as compared to the same period in 2019. Excluding this item, the water segment's earnings would have increased $0.11 per share as compared to the Q1 of 2019, due largely to new rates authorized by the CPUC. In May 2019, the CPUC issued a final decision on Golden State Water's water general rate case, which determined new rates for the years 2019 through 2021 with rates retroactive to January 1, 2019. As a result, Golden State Water recorded the impact of the final decision in the Q2 of 2019, including earnings of $0.08 per share that related to the Q1 of 2019.
We continue to invest in the reliability of our water and electric systems. During the Q1, we spent $23,200,000 in company funded capital expenditures. The Water Utility segment continues with its construction program. However, we have tried to avoid construction projects that would temporarily shut off water to customers. The construction programs for Golden State Water's electric segment have not been negatively impacted.
We estimate we'll spend $115,000,000 to $130,000,000 for the year, barring any delays resulting from changes in Golden State Water's capital improvement schedule due to the COVID-nineteen pandemic. This would be about 3.5 times our expected annual depreciation expense. I will now turn the call over to Eva to review the financial results for the quarter.
Thank you, Bob. Hello, everyone. Let me start with our first quarter financial results Slide 8. Consolidated earnings for the quarter were $0.38 per share compared to $0.35 per share for the same period in 2019. As Bob mentioned, the Q1 results included a $2,400,000 pretax loss on investments held to fund the retirement plan as compared to $1,500,000 in pretax gains in Q1 of last year, resulting in a decrease in earnings of $0.08 per share compared to the same period last year.
In addition, water and electric revenues for the first quarter of 2019 were based on 2018 2017 authorized rate, respectively, due to delays in receiving final decisions on both the water and electric generated cases. The final decision for the water rate case was received in May 2019, and as a result, we recorded the impact of the final decision for the Wallet segment in the Q2 of 2019, which included earnings of $0.08 per share that's related to the Q1 of 2019. Similarly, the final decision for the electric rate case was received in August last year, and we record the impact of this final decision for the electric segment in the Q3 of 2019, including earnings of $0.02 per share that related to the Q1 of 2019. The decrease in earnings for the quarter at ASUS was due to higher costs incurred on certain capital projects as well as higher legal and outside service costs, which tends to fluctuate from period to period. Consolidated revenue for the Q1 increased by $7,400,000 as compared to the same period in 2019, while the revenues increased $6,700,000 due in part to new water rates approved by the CPUC, which became effective January 2020.
Golden State Water received a full second year step increase for 20 20 as a result of passing the earnings test. Also, as mentioned earlier, water revenues for the Q1 of 2019 were based on 2018 adopted rates due to the delay in receiving a final decision on the water general vacate. There were also revenue increases related to CPUC approved surcharges to recover previously incurred costs. Electric revenue were $400,000 higher due to new rates approved by the CPUC effective January 1, 2020. In addition, revenues for the Q1 of 2019 were based on 2017 adopted electric rate, also due to CPUC's delay in issuing the final decision.
The $300,000 increase in contracted service revenue for the Q1 was largely due to increases in construction work performed as compared to the same period in 2019. Turning to Slide 10. Our water electric supply costs were $21,000,000 for the quarter, a slight increase of $200,000 from the same period last year. Any change in supply costs, as we mentioned before, for both the water and electric segment as compared to the adopted supply costs are tracked in balancing accounts. Looking at total operating expenses, excluding supply costs and surcharges, consolidated expenses increased $1,300,000 as compared to the Q1 of 2019 due to an increase in administrative and general expenses because of higher labor and outside service costs and maintenance expense due to unplanned maintenance activities at the water segment.
Maintenance expense is expected to level off during the remainder of this year. These increases were partially offset by a decrease in depreciation expense, which was due to lower composite rates at the water segment approved in the May 2019 CPUC decision on the water generated. The lower new composite rate were not recorded during the Q1 of 2019, pending receipt of the final decision. Interest expense, net of interest income and other, increased by $3,700,000 due primarily to losses incurred on investments held in a trust to fund a retirement benefit plan as a result of recent market conditions as compared to gains generated during the Q1 of last year as we mentioned earlier. Slide 11 shows the EPS bridge, comparing the Q1 this year with the same quarter of 2019.
Turning to liquidity on this slide. Net cash provided by operating activities was $15,700,000 as compared to $29,400,000 in 2019. There was a decrease in cash flow from accounts receivable from utility customers due to the suspension of service disconnection to customer for non payment during this special time. Any better expense incurred in excess of what is in our water and electrical revenue requirements a result of the impact caused by the COVID-nineteen response is tracked in a CPUC approved catastrophic event memorandum account for future recovery. As a result of this catastrophic event memorandum account, Costs incurred in response to the COVID-nineteen pandemic, including bad debt expense, are not expected to materially impact water and electric earnings.
There were also decrease in cash flow resulting from the timing in building of and cash receipt for construction work at military bases during the Q1. Golden State Water invested $23,200,000 in company funded capital projects during the 1st 3 months of 2020. As Bob mentioned, we still anticipate Golden State Water's company funded capital expenditure to be at a range of $115,000,000 to $130,000,000 barring any delay caused by COVID-nineteen. In March of 2020, American States Water amended its credit facility, increasing the borrowing capacity to $260,000,000 through the end of 2020, at which point the borrowing capacity will revert to $200,000,000 We plan to issue long term debt at Golden State Water later in 2020. In addition, we have entered into a commitment letter with the bank to establish a revolving credit facility up to $50,000,000 for our electric segment effective June of 2020 for a period of 3 years.
At this time, we do not expect American State Water to issue additional equity. With that, I'll turn the call back to Bob.
Thank you, Eva. I'd like to provide an update on our recent regulatory activity. Golden State Water has a financing application on file with the CPUC. A proposed decision was received last week authorizing Golden State Water's request to issue and sell additional debt and equity We expect a final decision in the Q2. As Eva mentioned, we intend to issue long term debt at Golden State Water later in 2020 once it is approved.
In March of this year, the CPUC approved a request to defer Golden State Water's cost of capital application by 1 year, which was scheduled to be filed on May 1, 2020. In January 2020, Golden State Water, along with 3 other investor owned California water utilities, requested an extension of the date by which each of them must file its 2020 cost of capital application. The CPUC's approval postponed this filing date by 1 year until May 1, 2021, with a corresponding effective date of January 1, 2022. The CPUC also approved the joint party's request to leave the current water cost of capital mechanism in place, but there'll be no changes to the company's rate of return on rate base during the 1 year extension, regardless of what the mechanism might otherwise indicate. Golden State Water's current authorized rate of return on rate base is 7.91%, based on its weighted cost of capital, which will continue in effect through December 31, 2021.
The 7.91% return on rate base includes a capital structure with 57% equity and 43% debt. We are currently preparing our next water general rate case, which will be filed in July of this year for new rates beginning in 2022. As you'll see from this slide, the weighted average water rate base as authorized by the CPUC has grown from $717,000,000 in 2017 to $916,000,000 in 2020, a compound annual growth rate of 8.5%. Rate base amounts for 2020 do not include the $20,400,000 of advice letter projects approved in Golden State Water's last general rate case. Let's move on to ASUS on slide 15.
ASUS's earnings contribution for the quarter was 0 point $8 per share, a decrease of $0.03 per share versus last year. The decrease is a result of retroactive revenues of approximately $0.01 per share in the results for the Q1 of 2019 with no similar retroactive revenues during the first quarter of 2020. Excluding this retroactive amount, diluted earnings per share from the contracted services segment decreased by $0.02 per share, largely due to higher than expected construction costs incurred on several projects, as well as higher outside service costs, which tend to fluctuate from period to period. These decreases to earnings were partially offset by an increase in management fee revenues. As we look ahead to the full year, we reaffirm our previous guidance of $0.46 to $0.50 per share for ASUS' 2020 earnings contribution.
We are still involved in various stages of the proposal process at a number of military bases considering next several years. Due to our strong relationship with the U. S. Government as well as our expertise and experience in managing bases, we are well positioned to compete for these new contracts. I'd like to turn our attention to dividends outlined on Slide 16.
The Board of Directors last week approved a 2nd quarter dividend of $0.35 per share on the common shares of the company, reflecting the 10.9 percent annual dividend increase in 2019. American States Water Company has paid dividends to shareholders every year since 1931, increasing the dividends received by shareholders each calendar year for 65 consecutive years, which places it in an exclusive group of companies on the New York Stock Exchange that have achieved that result. Company's current dividend policy is to achieve a compound annual growth rate in the dividend of more than 7% over the long term. I'd like to conclude our prepared remarks by thanking you all for your interest in American States Water. We wish the investment community, our shareholders, customers and employees the best during this historic time.
I'll now turn the call over to the operator for questions.
We will now begin the question and answer session. Our first question is from Durgesh Chopra from Evercore. Go ahead.
Thank you. Bobby and Eva, full year, you're well and safe and thank you for the slides and prepared commentary this morning. I just wanted to kind of maybe can you give us any color on April demand trends that you might have seen in your service territory, if you have that information? I'm just wondering, like most of the utilities, your electric and gas peers have talked substantial declines in their commercial and industrial classes and then offset in the residential class. I was just hoping to get any color that you may be able to provide on that front?
Sure, Durgesh. I'd be happy to and I hope you and your family are safe. Yes, I'd be happy to talk about that. As you know, we have both the water revenue adjustment mechanism and the base rate revenue adjustment mechanism on our electric business. So volumes don't impact our P and L.
And I think you also know that our company is largely more than 90% is residential commercial. So we really haven't seen a drop in demand either on our water side or electric side.
As a matter of fact, our billed water consumption for the Q1 of 2020 increased by about 11% compared to the Q1 last year. Of course, as Bob mentioned, we do have a RAN account, so it doesn't impact revenue as much, but consumption actually went up in the Q1, Kedesh.
We made a fairly dry Q1, which created being largely responsible for the increase in the water demand.
Got it. Got it. But specifically for April, you're not seeing any material drop in load or for that matter any pickup in load being that most of your electric and gas peers who are seeing a pickup in the residential load, you're not seeing anything material. I'm focused just on the month of April. I get the Q1 increase, but I mean really the impacts of the pandemic started like mid March, somewhere around that timeframe.
So it sounds like April, you guys didn't see a material impact either way?
I don't think so. We're looking to more.
Right. We haven't noticed any drop, I would say.
Got it. Thank you. And then just sort of high level, appreciate that you guys don't have forward looking EPS projections. And but when I think about the sort of the Bob, just a rate base growth rate of 8.5% last few years. Is that would you say is that a good proxy going forward?
Is there a reason to think that the rate of capital investment or rate based growth would slow down going forward? If anything, I think some of your peers have talked about just as commodity oil and gas prices have come down, more room in the customer bill. And if anything, the rate base growth may be accelerated going forward over the long term. Is that fair? What do you see perhaps CapEx rate base growth next few years out?
Well, we're in the process of putting together our rate case for 2022 through 2024. Really difficult to say whether the 8.5% is a good proxy for going forward. I wouldn't say that we're going to see an appreciable increase there, because I think when you talk about electric and gas, you might see some commodity price reduction there. I mean, we're not seeing that on the water side, of course. So and we are very mindful of what sort of rate base growth kind of does to our customers.
We know we've got to keep our systems reliable and we are pretty aggressive about putting pipe in the ground, but we also recognize there's a sort of customer at the end of the line here that has to pay for all this. So we really try to reach a balance.
Got it. Perfect. Thank you. Thanks, Bob and Eva. Have a
great day.
Thank you. You too.
You too.
Our next question is from Richard Verdi from Coker and Palmer. Go ahead.
Hi, Bob and Eva, and thank you for taking my call here. I just have a quick question surrounding the military business. Durgesh did a good job and asked a couple of my questions for me. With the shutdowns in place, how does that impact new base award potential? I mean, are these people working from home where decisions could be made and awards announced as soon as the shutdowns end?
Or is the process being entirely ignored until the shutdowns are over and things pick up from where they left off in March before shutdowns went into effect?
Yes, I'll just give you my perspective on that. We don't necessarily see any slowdown going forward because of COVID-nineteen in terms of folks working from home or telecommuting, etcetera. What sort of pushes the pushes this along for the government is whether they have funds to award for privatizations. And that's what potentially a slowdown might be is if the government's taking those funds and using it for other things. The sense we get from the government at this point is that there's a few awards that will be made in 20 20.
And that's really sort of been the history the last few years. So I wouldn't characterize that as a slowdown. So the latest is there's a couple of awards I think that are being planned on being made this year.
Okay. That's great color. Thank you for that, Bob. And, Eva, I'll reach out to either yourself or Janine and up something for offline. Thanks a lot guys.
Casey, thank you.
Yes. Thanks Richard.
Our next question is from Michael Gautler from Janney. Go ahead.
Just a quick question. Bob, maybe this is one for you. The retirement plan impacts on the quarter, Wondering if that could be smoothed out or hedged in a cost effective manner going forward given the size of the impact that you saw?
It's a valid question. So it speaks to how do you have those dollars invested. And we're obviously seeing quite a bit of volatility in the market and that does affect the returns on that retirement plan. We have that that plan is traditionally financed. So it's we want to sort of do well with our funds there.
But given the volatility, I understand it's it makes our analysts and company management ring their hands a bit. So we'll be looking at the possibility there, but we're not ready to sort of commit at this point that we're going to be doing anything different than we currently are. However, we do understand how it does cloud the numbers a little bit, particularly when you've got an $0.08 per share swing.
Okay. That's all I have.
Thanks. Thanks, Michael.
Our next question is from Jonathan Reeder from Wells Fargo. Go ahead.
Hey, Bob and Eva. How are you all?
Okay, Jonathan. How about you?
Not too bad, hanging in. Pretty big day, but got a job, so that's good.
Very good, Jonathan. You got to
be mindful of what's the
cadence of that. Yes, that's for sure.
Otherwise, we just stuck out
on the golf course all day or something.
That simple, but either way, I just have a couple of housekeeping kind of questions. EBITDA, I hear you correctly that you said the higher maintenance expenses at Golden State Water in Q1 that you expect that to kind of be offset or balanced out through course of the year?
Yes. I think Q1, we saw a few unplanned maintenance came out and kind of put us higher than last year, but we don't expect that to continue throughout the year. So I think that will level off.
Okay. And then in ASUS, it seems like there may be some headwinds there during Q1, including hiccups on capital projects. Do you expect to offset those over the course of the year? Or might it imply that results for ASU as we're trending towards the lower end of that $0.46 to $0.50 range?
Well, right now, Jonathan, we do expect to offset the results for the Q1. We did have a couple of construction projects that we had some unforeseen conditions on some projects. But the team is working hard to sort of make that up.
Okay. And then did that like is that related to some of the projects being delayed? I think there's something saying some of the ASUS projects were delayed?
No, it was more work on a few of the construction projects than what we had anticipated, so because of the site conditions.
Okay. But were there some ASU construction projects that got delayed in Q1
or am I?
We don't think so. No, not really.
Okay. I must be thinking of something else. So, okay, that's all I have. Thank you.
Thanks, Jonathan. Take care.
At this time, this concludes our question and answer session. I would now like to turn the conference back over to Bob Sprowls for closing remarks.
Thank you, Kate. I just wanted to close today by thanking everyone for their participation and letting you know we look forward to speaking with you the next quarter. So thank you very much. Bye bye.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.